Moves On in Congress to Lift Secrecy at the Federal Reserve

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For the first time since the early 1980's, Congress is considering sweeping legislation to force the Federal Reserve to shed some of its secrecy and be more accountable to Americans for its decisions that for better or worse steer the economy.

A recently introduced bill, co-sponsored by Representative Lee H. Hamilton, Democrat of Indiana and chairman of the Joint Economic Committee, would force the Federal Reserve to share with the White House and with Congress some of its power to regulate interest rates. One notable provision would put the Treasury Secretary back on the Federal Reserve Board for the first time in half a century. Another would allow Congress to audit the agency's transactions.

The Federal Reserve, in its influence and independence, is extraordinary by Washington standards, comparable in autonomy to the Supreme Court. Guided by a handful of appointed experts, it can create or destroy fortunes with its power to move interest rates. And its decisions, like those of the Court, are not subject to appeal.

Still, the odds against passage of the Hamilton bill are long. Congress may even prefer an independent Federal Reserve that spares it the responsibility of making painful choices about the economy - a consideration that helped to defeat Federal Reserve bills in the past. But public hearings on the Hamilton bill are expected to become a forum for wide-ranging criticism of the central bank's powers.

Such criticism is often heard in periods of economic change, like the present one. The recent slowdown in economic growth has raised the risk of a recession, for which the central bank would almost certainly be blamed. It was roundly blamed by many Americans for the severe 1982 recession, and Mr. Hamilton says the public's memory has not faded.

''People got up and attacked the Fed in public meetings in Indiana, and I began to understand that the fellow out there was suspicious of the institution, and still is,'' Mr. Hamilton said. ''The steps in my proposal would simply maintain confidence in the Fed.''

Congress might approve a provision of the bill that would end the Federal Reserve's practice of waiting six weeks to announce policy decisions on interest rates. Although Alan Greenspan, the Fed's chairman, argues that immediate disclosure would handicap policy-making, interviews and public statements show that at least 7 of the Fed's 18 other top officials would accept the change.

Whatever the outcome, Mr. Hamilton, who gained national attention for his skill in presiding over the Iran-Contra hearings, is making himself a prominent Fed critic, in the tradition of two earlier Democratic representatives - Wright Patman, an old-fashioned Texas populist, in the 1950's and 1960's, and Henry S. Reuss of Wisconsin. In the 1982 recession, Mr. Reuss led the last big attempt to change the Federal Reserve.

Right now, the making of monetary policy is not democratic enough for Mr. Hamilton. Nineteen appointed Federal Reserve officials hold the power to change interest rates and thus the level of the nation's economic activity. No other branch of Government can veto their actions. And no transcripts are kept of their closed-door deliberations.

The group, known as the Federal Open Market Committee, consists of the seven Fed governors, among them Mr. Greenspan, and the 12 presidents of the Federal Reserve's regional banks. It waits six weeks after each meeting to issue skeleton summaries of views and decisions.

In the last 18 months, the committee made decisions that led to significantly higher interest rates, including those for mortgages, car loans, Treasury securities and home equity loans. The stated goal was to reduce inflation by discouraging the borrowing that finances spending and thus helps to push up prices. In June, however, as spending fell and the economy weakened, the Fed changed course, cutting rates to stimulate the economy and ward off a recession.

''The ordinary guy in Indiana, if he has trouble with this monetary policy, he can't call Greenspan, so he comes to me,'' Mr. Hamilton said. ''I say, 'I don't make monetary policy,' and he is offended.'' Since the Beginning

Such remarks reflect an issue that has plagued the Federal Reserve since Congress created it 75 years ago and is once again at stake.

The Midwestern farmers and businessmen whom Mr. Hamilton and the bill's co-sponsor, Representative Byron L. Dorgan, Democrat of North Dakota, represent often favor lower interest rates or ''easy money'' to make borrowing easier. Many administrations since World War II have also campaigned for lower interest rates. But the Federal Reserve has traditionally agreed with bankers and bond dealers, who typically advocate ''hard money,'' or higher rates, to prevent the inflation that can devalue the loans they make and the securities in which they deal.

That preference for hard money would be more difficult to maintain if Congress and the Administration had a bigger say in making monetary policy. That is the view of Mr. Greenspan, of other top Fed officials and of many economists, and it helps to explain the Fed's opposition to limits to its independence.

''All elected representatives are probably in favor of easy money over hard money and lower rates over higher ones,'' said Roger Guffey, president of the Federal Reserve Bank of Kansas City. ''But the issue is Fed independence. It allows us to adopt measures that might not be popular for the moment, but are in the best interests of the country.''

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Whatever the forces working against the Hamilton-Dorgan bill, it has three things going for it.

One is the prestige of Mr. Hamilton, who has in the past introduced Fed bills much narrower than this one. His request for hearings would be honored by the House Subcommittee on Domestic Monetary Policy, subcommittee aides said. In addition, Representative Henry B. Gonzalez, Democrat of Texas, the new chairman of the House Banking Committee, says he will hold hearings soon on his own Fed reorganization plan, one that would include most of the Hamilton-Dorgan proposals. Accoutable to the Public

''The Fed should be accountable not only to the banks and the markets, but also to the public,'' he said, reflecting his roots in Texas populism.

The second plus for the bill is the possibility of a recession for which the Fed would be blamed, reinforcing the campaign to dilute its autonomy. The Administration served notice last week that if a recession occured, it would hold the Fed responsible. Even Mr. Greenspan acknowledged recently that a ''policy mistake'' by the Fed could touch off a recession, a rare admission for a Fed chairman.

But while Congress and the Administration like to blame the Fed for recessions, they have balked at playing a greater role in monetary policy -for they would risk sharing the blame for recessions. This reluctance could help kill the Hamilton-Dorgan bill, some Congressmen say.

Such reluctance is already apparent. Treasury Secretary Nicholas F. Brady, for example, says he is satisfied with his informal dealings with Mr. Greenspan. The two talk over breakfast every week or two. 'A Mystery to Me'

''This informal relationship is a mystery to me,'' Mr. Hamilton said. ''Putting the Treasury Secretary on the Fed gives the Administration a role in making monetary policy.''

Less controversial is the proposal for immediate disclosure, which would require the Fed to announce monetary policy decisions as quickly as they are made. Such announcements would show up prominently in news reports, thus broadening the debate over the proper level for interest rates, Mr. Hamilton said.

Previous criticism has already reduced the disclosure delay from three months in the late 1970's to six weeks in the 1980's. Interviews with 10 of the 19 governors and regional bank presidents show that immediate disclosure is either favored or acceptable to five of them. Two others have indicated in public statements that they also favor the change.

''I'm tempted to say that if the present system ain't broke, don't fix it,'' said Gary H. Stern, president of the Federal Reserve Bank of Minneapolis. ''But I don't think the world would fall apart if the information were released right away.'' Threat to the Markets

Mr. Greenspan disagrees. Doing away with the six-week waiting period could destablize the stock and bond markets, he told Congress last month. Some decisions call for tentative strategies that might be reversed a week or two later, or never carried out, he said. Besides, when the Fed changes its stance on interest rates, the Wall Street market experts catch the change quickly enough, he added.

But if there is disagreement within the Federal Reserve on immediate disclosure, Mr. Greenspan and his colleagues are nearly united against making the Treasury Secretary a voting member. They also oppose two other provisions. One would require publication of the Fed's budget as part of the Government's annual budget, perhaps exposing Fed spending practices to greater public scrutiny. The other would allow the General Accounting Office, the investigative arm of Congress, to audit the Fed's monetary policy transactions.

Such transactions are now shielded from outside audit, although the Fed influences interest rates through the purchase of hundreds of billions of dollars in Treasury securities. Audits of these trades would permit the G.A.O. to recommend changes in Fed operations, thus giving Congress a lever for influencing monetary policy, G.A.O. officials said. An Extraordinary Period

The Hamilton-Dorgan bill, if it were somehow to become law, would end an extraordinary period of Federal Reserve independence that has lasted since 1951. For the first 22 years of the Fed's life, until 1935, the Treasury Secretary was a voting Fed member.

The last Treasury Secretary on the Fed, Henry Morgenthau, was removed because he was too strict, rather than too loose. Mr. Morgenthau, a hard-money man from Wall Street, left in a reorganization engineered by Marriner S. Eccles, a Fed chairman who favored lower interest rates to help bring the nation out of the Depresssion.

For 16 more years, the Fed was required to sell Treasury securities at below-market interest rates so that Government spending could be financed at the lowest possible cost. This preferential treatment, considered inflationary, ended in 1951.

A version of this article appears in print on August 24, 1989, on Page A00001 of the National edition with the headline: Moves On in Congress to Lift Secrecy at the Federal Reserve. Order Reprints|Today's Paper|Subscribe